Franchising in the Philippines: Can You Sell the Business?

Before buying a franchise, consider how you might sell it one day. Selling the equipment or the business does not automatically give the buyer the right to use the brand. In franchising, it is important to establish when the agreement can be transferred, whose consent is required and what liabilities you would retain. An outlet may be profitable yet difficult to sell because of its contractual terms.

1. Find out exactly what can be transferred

Selling business assets, transferring a franchise agreement and selling shares in the company that operates the franchise are different transactions. Each may require different approvals.

For example, the franchisor may accept a new buyer but require them to sign a new agreement. Under other agreements, the buyer may be able to take over the remaining term of the existing contract. This can significantly affect the business's value and its appeal to prospective buyers.

Look for provisions covering:

• The sale or transfer of the whole business.
• Bringing in a new partner or selling shares in the company.
• A change in who controls decision-making.
• The franchisor's right to buy the business before another buyer does.

Do not assume that consent is unnecessary simply because the company name stays the same. The contract may treat a change in majority ownership as a transfer, even if the company that signed the agreement remains unchanged.

2. Understand the legal basis for consent

The Philippines has no single comprehensive law covering every aspect of franchising. Executive Order No. 169 provides protections for micro, small and medium-sized enterprises taking on franchises, but it should not be treated as an automatic right to sell your franchise to anyone you choose.

Under Article 1306 of the Civil Code, parties may set contractual terms provided these do not conflict with law, morals, good customs, public order or public policy. A franchisor may impose restrictions and conditions on the transfer of rights, obligations or ownership of the business.

Republic Act No. 8293, the Intellectual Property Code, is also relevant. Agreements involving the transfer of technology and systematic knowledge are subject to the prohibited and mandatory provisions in Sections 87 and 88. Have a lawyer review the existing agreement and any new one, particularly if the terms will change as part of the sale.

Do not rely on claims that there is a general right to transfer a franchise whenever the buyer is qualified. Check that any legislation cited is in force, rather than merely a proposed bill, and identify which protections are actually included in your contract.

3. Make sure the approval process is clear

The phrase “consent is required” is not enough without clear criteria and a defined procedure. Before signing up to buy a franchise, ask for details of how a future buyer would be assessed.

Eligibility. Check the requirements for financial resources, experience, time devoted to running the business and training. Ask whether these criteria can change during the contract term.

Documents and timescales. Request a specific list of documents to submit and a deadline for a response once the submission is complete. Seek a contractual obligation to provide written reasons for any refusal. These are protections to negotiate, not rights you should assume the law automatically provides.

Right of first refusal. If the franchisor has this right, clarify what triggers it, how long they have to exercise it and whether they must match the price and terms offered by another buyer.

Ask the franchisor to explain the process using a hypothetical sale. If it is unclear who must act and when, the buyer could be left in limbo and your negotiations could come to nothing.

4. Calculate your net proceeds and remaining liabilities

The sale price is not necessarily the amount you will receive. There may be transfer fees, training costs for the new owner, required alterations to the outlet and outstanding obligations that must be settled first. Ask for the basis of each charge, who must pay it and when payment is due.

Also clarify whether your liability for obligations will end after the transfer. Approval of the buyer should not simply be taken to mean that you are released from all debts or guarantees. Request written terms that clearly distinguish responsibility for liabilities before and after the agreed transfer date.

Have the sale agreement state that completion is conditional on obtaining the necessary approvals, and specify what happens to the deposit if those approvals are not obtained.

Practical summary: Before buying, make sure you have a clear exit route: an eligible buyer, a defined process, itemised costs and written limits on your liability.